A long hiatus calls for a long blog. I thought long and hard, wrote long and hard and here it is: the result of all that time spent thinking:)
The American electric power industry has been in a state of flux in the last decade, ever since the sector has been opened to competition. This constantly evolving industry has interesting challenges ahead, which, broadly speaking, can be broken down into two categories: external and internal. External challenges are those that are not under the control of the industry itself. These can be further broken down into sub-categories of fuel price volatility, access to capital and climate change regulation. Internal challenges are those that are integral to the way in which this industry will evolve, both in the near and long term. These can be sub-classified into areas such as Demand Side Management and distributed generation, including incorporation of electric vehicles, and Low Carbon Technology Integration.
Let’s take a few minutes to look at each challenge in greater detail, starting with the internal challenges in the first section.
1.1 Carbon Footprint Reduction: There has been a general trend towards decarbonizing the electric grid, which has been independent of the political opinion on Climate Change. The sector has been reducing its carbon footprint primarily through standards and subsidies for renewable power. The energy sources mainly benefiting from this movement include solar, wind, biomass/biofuel and potentially carbon capture and sequestration (CCS), each having its own unique selling point.
Solar and wind are front runners in this race owing to their practically zero fuel cost, both abundantly supplied by nature. The importance of this largesse cannot be overemphasized when we look at the trajectory of fossil fuel prices in the last few years. However, the unpredictability of these technologies poses planning issues for system operators, an issue most pronounced with wind power. Although leading the pack of low-carbon technology by the way of total installed capacity, equaling 40 GW and growing rapidly, wind cannot be counted upon when you might need it the most. Wind does not blow during the peak hours on hot summer days. Even on normal days, predicting wind patterns could be more complicated than rocket science, making resource planning for system operators a major headache. These technologies are also hobbled by their extremely low efficiency of electricity production.
Biomass makes for an interesting resource for the electricity sector due to the fact that it consumes carbon dioxide to grow. Thus any process of electricity generation through biomass can be designed to be carbon negative, taking in more carbon than it emits, or carbon neutral, taking in as much carbon as it emits. Despite the initial hiccups with integrating biomass energy into the system, there are all the indications that this resource could play a bigger role in the future.
The fate of CCS hangs in the balance. While there is a general consensus that the power sector would need some form of a technology that can capture carbon emissions from coal plants, the prohibitively high cost of CCS has made utilities dither until now. While reducing this cost would definitely help, having a carbon price through a tax or cap and trade would give a massive boost to the feasibility of CCS. Utilities and other players in the power industry would want to be informed of developments in this space.
This area is a hotbed for technology providers, in every shape and form. The push for more renewables through the renewable energy standards will keep demand for wind turbines and solar generation technologies high, in the foreseeable future. There would also be demand for niche solvent manufacturers who can provide chemicals that not only capture a higher percentage of carbon dioxide emissions from coal power plants but also get easily separated from that captured carbon dioxide.
1.2 Demand Side Management: The running joke in the power sector is that if Thomas Edison came back to life today, he would instantly recognize the current electric grid for it’s too similar to the one he had envisioned. There has been a steady movement for the past few years to modernize the grid and make it “smarter”. The obvious place to start is to make the grid a two-way street for information, which would not only keep consumers better informed about their usage and electricity price at different times but also help utilities track and correct faults in the system in a very timely fashion.
A “smart” grid would give better price signals to consumers, having peak hour prices rising steeply compared to the off-peak hours. The hope with all this is that consumers can shift their activities around to shave off the peak demand. A significant reduction in peak demand can obviate the need to build new power plants for reliability purposes, an activity which is not favored in this tight economic climate. We could end up seeing a new business model for utilities and power producers, one in which these companies encourage their consumers to use less of their product but make up the loss by charging higher for the electricity they provide.
The final aim of any smart grid, or the proverbial “smartest” grid, would not only be a two-way street for information but also for electricity. It would enable customers to generate power of their own, through rooftop solar PV or any other distributed generation technology, and allow the grid to feed in power from the other end. Another important technology in the distributed generation space is energy storage, and the role of batteries in storage. This would, however, be a long term vision for the grid, one that would entail that all preceding pieces fall into place.
Somewhere in this spectrum ranging from a smart grid to the smartest grid lays a grid that can enable electrification of the transportation sector. With the advent of electric cars, load on the power sector is bound to rise steeply. This industry would be ill-advised to allow electric car owners to charge their cars at the same flat rate that they charge the households, calling for a differential pricing mechanism. Still, electrification of this sector is a massive opportunity for the power industry. The advent of air conditioning was hailed as the transformational event for the electric power sector in the 20th century. There are enough signs to show that electric cars could very well have the same impact for the power industry in the 21st century.
While the current grid would need to be improved to make it smarter, it would also need to be expanded. There is a lot of activity underway in building transmission lines not only to bring electricity to more places but also to relieve congestion in places with high power prices.
This is another area of extreme importance for technology providers. The enhancements needed for the current grid to become a smart one necessitate installation of a lot of communication and monitoring equipment. This partly explains why all the major high-tech companies like IBM, Siemens and Cisco are so bullish about the smart grid. These companies have got the experience in the telecommunication business and can leverage this expertise to make the electric grid “talk”.
Actually, I had a lot of time to write and write and write. You may not have the time to read all of that in one go. So, lets look at the external issues with this industry next week. Stay tuned:)
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